On better prospects, oil firms want longer leases

SummaryWith 8 big finds in just 1 year, firms need more time for extraction.

Oil and gas producers worried about the prospect of their lease agreements expiring prematurely have lined up before a government committee, seeking an extension of the lease period. In all, 12 oil and gas fields whose production sharing contracts (PSCs) are set to expire between 2019 and 2025 including Cairn India's prolific Barmer fields in Rajasthan and the Panna Mukta Tapti (PMT) fields held by ONGC, BG and Reliance Industries need extension.

What's prompted these firms to seek longer tenures for these PSCs is a flurry of new finds in these fields – five by state-run ONGC, two by the RIL-BP combine and one by Cairn, which it recently said would go commercial soon.

Cairn India, which recently got the its integrated block development plan (IBDP) for the Barmer field approved by the government, wants the relevant PSC to be extended by 10 years to 2030. The PMT fields' lease periods are valid until 2021, and the developers want these to be extended too.

All these are pre-NELP blocks where the PSCs comprised both exploration and production phases and have a tenure of 25 years. Halfway through the PSC, the companies realised that in order to fully tap the resources, they would need the PSCs to be extended.

The panel led by the oil ministry has representatives from the law ministry, Directorate General of Hydrocarbons and the Planning Commission, said sources.

During the first quarter of this financial year, Panna-Mukta produced 1.8 million barrels of crude oil and 16.9 billion cubic feet (bcf) of natural gas, a drop of 19% in oil and 5% in natural gas production. Tapti produced 7.8 bcf of natural gas during the first quarter, a fall of 43%.

All the blocks that have come up for renewal are pre-NELP blocks where 25-year PSCs for exploration, development and production were handed out to operators. The NELP blocks in the country have a poor track record so far with only three out of 254 blocks allotted to exploration companies seeing any form of production.

Also, in the case of NELP blocks the exploration and mining phases are clearly delineated.

Cairn India CEO P Elango, in an analysts' called held on Tuesday, said that as commercial gas sales from the Barmer block started in March 2013, the company is eligible for a 10-year extension in lease period. Moreover, globally extension of lease agreements is a well-established norm.